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Malaysia: Domestic Corporate Taxation

Corporate Income Tax on Dividend Income Received

Like Hong Kong, corporate income tax in Malaysia follows the "territorial principle" with the consequence that income remitted to but earned outside Malaysia by a resident Malaysian corporation is exempt from corporate income tax in Malaysia irrespective of whether the income is:

  • Dividend, interest or royalty Income received by a resident Malaysian holding company from a foreign subsidiary; or
  • Trading income earned by a resident Malaysian company from trading activities conducted abroad.

In accordance with the generally accepted fiscal principle governing dividend transfers between resident parent and resident subsidiary corporations, income distributed by the resident Malaysian holding company to the Labuan offshore parent corporation is free of corporate income tax in the hands of the Labuan entity (with the exception of royalty income which is taxed at 3% in Labuan).

(N.B. If the foreign subsidiary was owned by a resident Malaysian corporation with no offshore Labuan connection then remittances flowing from the resident Malaysian corporation would be subject to 10% withholding taxes in respect of capital gains, royalty or loan interest income. Accordingly the "Malaysian Satay" corporate structure is to be preferred to ownership of a foreign subsidiary by a Malaysian company with no Labuan connection).

 

 

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